House prices in Scotland continue to lag behind the cost of homes in England and Wales, according to the latest survey.

Slower growth in prices north of the border has led to a doubling of the gap over the last two years.

The average price of a house in Scotland is now more than £44,000 below the UK average - and £138,000 below the London average.

The comparisons are in the latest Quarterly Scottish House Price Index from the Bank of Scotland.

The smaller rise in house prices in Scotland is mainly due to the underperformance of the Scottish economy

Martin EllisBank of Scotland

According to the report, the annual rate of house price inflation in Scotland over the third quarter of this year was 7.3%.

That compares to 21% over the UK.

The average house price in Scotland now stands at £68,648 compared to the UK average of £113,035.

Inverness saw the biggest rise - 39%

the average price of a house in Aberdeen broke through the £100,000 barrier for the first time

prices in Edinburgh, Glasgow and Aberdeen increased by 15 to 17% compared with 4% in Dundee

although prices have risen by 26% in the Highlands over the last year, there has been little change in the Borders

there was a modest 5% gain in Tayside

Edinburgh remains the most expensive city with house prices averaging more than £136,700

Demand for housing will continue

Analysts believe the weak Scots economy is to blame for the slower growth in house prices.

But overall Scottish prices are expected to continue their rise on the back of forecasted low borrowing rates.

Martin Ellis, Bank of Scotland's group economist, said: "The smaller rise in house prices in Scotland compared with the rest of Britain has mainly been due to the relative underperformance of the Scottish economy.

Technical recession

"The most recent figures from the Scottish Executive show that Scotland's gross domestic product fell by 0.7% in the first quarter of 2002, whilst GDP in the UK increased by 0.2%.

"The poorer economic climate has mainly been caused by a much deeper recession in Scotland's manufacturing sector compared with the rest of the UK."

Mr Ellis said the lower level of prices had a positive side-effect.

It should underpin housing demand in Scotland over the coming months.

Evidence suggests that Scotland's economic health is improving with the economy seemingly recovering from its `technical' recession at the start of the year.

These factors, combined with the likelihood that interest rates will remain at historically very low levels, are expected to support a further acceleration in house price inflation north of the border.